Do You Have a Formal Partnership Agreement in Place?

If your farm is operating as a family business, you might think it unnecessary to have a formal partnership agreement, but disputes and broken family relationships can result where misconceptions arise over ownership of assets.

It is not uncommon for the distinction between business assets and personal assets to become blurred over the years, and this is particularly true in the case of the farmhouse or similar buildings where the family has been residing. Are those buildings owned by the partners? Or were they owned by, for example, Father or Grandfather, and merely used by the farming partnership during the course of the ongoing activities of the business?

In a recent court case, where no formal partnership agreement had ever been drawn up, the judge ruled that a farmhouse which one son had claimed was a partnership asset was, in fact, a part of the late father’s estate and therefore owned by his widow. A second son had been living with his family in a bungalow on the land and had invested heavily in its restoration, even though some of the work had been funded by the partnership. His contention was that this was also his mother’s property, having been owned outright by his late father originally. The judge agreed.

Although the outcome was favourable for the residing family, they incurred a good deal of stress and financial outlay, and the son who lost the case was left feeling badly let down. Had a partnership agreement been in place, specifying what assets were owned by the partnership and what owned by the individuals, the situation would undoubtedly never have arisen.

It is very important to take advice from your solicitor and accountant when considering the ownership of assets and drawing up a partnership agreement. This will help to avoid any future problems and disputes. To talk to one of our team, please contact us.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.